4.11.34.2
(12-15-2004)Overview

The Internal Revenue Service Restructuring and Reform Act (RRA 98),
signed into law on July 22, 1998, made substantial changes to the Internal
Revenue Code and to the way Internal Revenue Service administers relief from
joint and several liability.

This law expands the relief available under the innocent spouse provisions.
It is the Service’s responsibility to ensure that these provisions are
implemented fairly. The IRS is dedicated to ensuring the rights of both the
requesting and non-requesting spouses are protected. The examiner needs to
ensure each claim receives timely and consistent treatment within the established
guidelines and in accordance with the law.

IRC Section 6015 provides three types of relief from joint and several
liability to spouses who filed a joint return. The three types of relief are:

Innocent Spouse Relief - IRC Section 6015(b)

Election to Allocate a Deficiency - IRC Section 6015(c)

Equitable Relief - IRC Section 6015(f)

Taxpayers may request relief from joint and several liability on Form
8857, Request for Innocent Spouse Relief.

Many married taxpayers choose to file a joint tax return because of
certain tax benefits this filing status allows.

Both taxpayers are jointly and individually responsible for the tax,
interest or penalties due on the joint return even if they later divorce.
One spouse can be held responsible for payment of all the tax due.

Given the implications of joint and several liability, each spouse is
responsible for:

The accuracy and completeness of the joint return; and

The payment of the tax liability as reported on the return, as well as
any additional tax, penalties and interest that may be assessed.

An individual's marital status at the end of a taxable period has tax
liability consequences. It determines:

The filing status of the individual, and

The items includible on the individual's tax return if the individual
is domiciled in a community property state and is not filing a joint return.

Married taxpayers living in community property states filing separate
returns may still be liable for income tax items attributable to their spouse
under the local community property law (See IRM 25.15.5 and IRM 4.11.32).

4.11.34.2.1
(12-15-2004)Non-Innocent Spouse Issues

Relief from joint and several liability should not be confused with
other provisions which may also provide relief to joint filers.

The following are issues for which relief under IRC 6015 is
not available:

Return signed under duress (See IRM 25.15.1 subsection 2.3)

Forged Signatures (See IRM 25.15.1 subsection 2.4)

Injured Spouse Claims (See IRM 25.15.1 subsection 2.5)

The Service has the responsibility to taxpayers to advise taxpayers
of these relief provisions even if the taxpayers does not specifically raise
them due to their own ignorance of the law.

4.11.34.2.2
(12-15-2004)Resources Available

A resource providing information concerning relief from joint and several
liability is the Innocent Spouse Website at http://www.hq.irs.gov/ISWP/index.htm
.

The following listing shows of some of the information available at
this site:

4.11.34.3
(12-15-2004)Pre-assessment Cases

During every examination of a joint return, the examiner must discuss
the taxpayer's obligations relating to joint and several liability and the
relief available under IRC Section 6015, i.e., Innocent Spouse Relief.

This discussion is documented on the activity record, Form 9984 (See
IRM 25.15.6 subsection 2.3).

As appropriate, the examiner may wish to provide the taxpayer(s) or
POA the following:

4.11.34.3.1.2
(12-15-2004)Form 8857 Non-Processable

The Form 8857 or a statement in lieu of must contain an original signature
and the tax periods for which they are requesting relief. If either of these
are missing, return to the requesting spouse for perfection.

4.11.34.3.2
(12-15-2004)IDRS Input/Verification

The examiner should verify, using IDRS command code IMFOLT, that the
following items have been completed after receipt of a processable Form 8857:

Ensure the input of Transaction Code (TC) 971 with Action Code (AC) 065
has posted (this can be verified using command code IMFOLT).

Note:

The transaction
date will be the receipt date of Form 8857. The requesting spouse's SSN should
be input as the X-Ref TIN ONLY if the requesting spouse is the SECONDARY taxpayer
on the account.

Ensure the input of TC 130 on entity module for the spouse not requesting
relief. Use command code ENMOD.

The Innocent Spouse Tracking System (ISTS) is updated.

Project Code is updated to
"014"
unless the current
Project Code has priority, i.e. lower number.

Examiner should contact their respective Innocent Spouse Coordinator
concerning any account updates not completed or completed incorrectly. A listing
of the I/S Coordinators is provided on the I/S website.

4.11.34.3.3
(12-15-2004)Report Writing and Documentation

Examination of an innocent spouse claim requires consideration of all
relevant code sections in the following order: IRC 6013(e); 6015(b); 6015(c);
and 6015(f).

The request for relief is treated as a separate issue and should contain
a separate index on Form 4318. At a minimum, the workpapers should include
the following:

Statement of determination for each year

Summary of pertinent facts; cross-referenced as needed

Basis for determination; including the development of all relevant factors

Listing of code sections addressed

Taxpayer's position if case is unagreed

Letter 3284 must be mailed to the non-requesting spouse at their last
know address and allow 30 days to respond.

Caution:

The requesting
spouse's new address or new name should never be disclosed
to the non-requesting spouse.

There must be some determination of how the liability should be allocated
if relief is fully or partially allowed. Allocation worksheets for underpayment
and understatements can be found on the Innocent Spouse Website.

Prepare Form 4549 using normal procedures.

Note:

Since the innocent
spouse determination will not appear as an adjustment, the determination is
listed in the
"Other Information"
section of Form 4549.
A proforma statement is provided in IRM 25.15.6 subsection 4.1(4). Separate
computations are needed to show an allocation of the liability between the
two spouses.

Form 886-A supporting your Innocent Spouse determination is needed in
every case.

4.11.34.3.4
(12-15-2004)Mandatory Review

With the implementation of the Streamline Innocent Spouse Processing
Procedures effective February 2, 2002, the requirement of 100% mandatory review
is no longer applicable.

In regards to the innocent spouse determination, examiners no longer
need to send pre-assessed cases to Technical Services for review and approval
prior to the issuance of the Form 4549 and/or 30-Day letter to the taxpayer.

4.11.34.3.5
(12-15-2004)Closing Instructions

Generally, normal case closing procedures apply to a case in which relief
from joint and several liability is raised.

When closing an innocent spouse determination case, your determination
should be annotated on the normal case closing forms. The two most common
closing forms are:

Form 3198, Special Handling Notice. Annotate with
"IRC 6015 Relief Case"
. This form should reflect whether the
assessment is against the requesting or the non-requesting spouse or both.

Form 5344, Examination Closing Record. This should
provide the adjustment information, including if the assessment should be
assessed on master file or MFT 31 or split between the two.

Complete information regarding AIMS closing of innocent spouse cases
can be found in IRM 4.4.15.

4.11.34.4
(12-15-2004)Post-Assessment Cases

The majority of innocent spouse cases are
"post-assessment
"
cases; i.e., the liability in question is already assessed on the
taxpayer's account.

This liability may relate to an underpayment, an understatement, or
both.

Given the collection statute of 10 years, some of the requests for relief
relate to very old years.

All cases, post & pre-assessment, should be established on AIMS
and carry the required Project Code of 014 and TC 971 with AC 065 ( See IRM 4.11.34 3.2. for additional Information).

The bulk of post-assessment cases are being worked at the Centralized
Cincinnati Innocent Spouse Operations (CCICO).

4.11.34.4.1
(12-15-2004)Workpaper Documentation

The workpaper lead sheet should contain an index reference to supporting
workpapers associated with an issue.

Examiners may find it useful to annotate additional information regarding
the case on the lead sheet. Reviewer remarks and examiner rebuttals are sometimes
written on the lead sheet.

In a case where relief is denied in full or in part, a Form 886-A explaining
your determination will be sent to the requesting spouse. This Form 886-A
will be sent with both the preliminary and final determination letters. Form
886-A should contain sufficient information to allow the requesting spouse
the ability to provide an adequate protest to the determination.

Form 886-A should also be sent to the non-requesting spouse in cases
where relief is granted in full or in part containing sufficient information
to allow the non-requesting spouse the ability to provide an adequate protest
to the determination.

4.11.34.4.2
(12-15-2004)Determinations

Before reaching a determination, the examiner shall fully develop the
facts and analyze the evidence. The examiner shall consider the facts and
circumstances of the case, apply the law objectively using the legal guidelines
provided, and decide whether any type of relief from joint and several liability
applies.

Since the assessment has already posted to the account, an examination
report is not issued to the taxpayers on a post-assessment case.

The innocent spouse determination is communicated to the requesting
and non-requesting spouse via a determination letter.

The determination letters are issued by Technical Services.

As a result of Rev. Proc. 2003-19, the requesting spouse receives a
"preliminary"
and
"final"
determination
letter on ALL determinations.

Note:

These determination letters function
much like a
"30-Day"
and
"90-Day"
letter
respectively.

The requesting spouse is provided Appeal rights in cases where relief
is denied in full or in part. The non-requesting spouse
is provided Appeal rights in cases where relief is granted
in full or in part (See Rev. Proc. 2003–19).

Innocent spouse post-assessment determinations are subject to a streamlined
procedural review. Therefore, a technical review is no longer conducted on
each case prior to the issuance of a determination letter.

Once the procedural review is complete, the reviewer shall issue the
preliminary determination letter accompanied by reports as necessary.

If, upon performing the streamline procedural review, the reviewer determines
harm will be done to the taxpayer as a result of the examiner's improper determination,
the reviewer may return the case to the appropriate group manager for further
development. The following is a list of some of the reasons why a determination
may be returned:

Facts and circumstances do not support the determination developed in
the case,

Law does not support examiner's determination, or;

Account problems are not resolved.

4.11.34.4.3
(12-15-2004)Closing Instructions

Examiners may find using a lead sheet an easy way to summarize a determination.
A copy of a lead sheet can be obtained from the I/S Website as a
"
Job Aid"
.

The following is a listing of information that can be summarized on
a lead sheet:

Requesting spouse's name, address, and phone number

Non-requesting spouse's name, address, and phone number

The Power of Attorney (POA) information for requesting spouse

POA information for the non-requesting spouse

The examiner's name, business address, phone and fax number

The Area Coordinator's name, and business address, phone and fax number

After a determination is made; provide instruction to Case Processing
for the proper closing of the case. This can be done several different ways.
The following are different forms that can be used to convey these instructions:

Form 12810, Transfer request checklist

Form 3870, Request for Adjustment

Form 3465, Adjustment Request

2-Way memo

Form 5402, Appeals Transmittal and Case Memo

Each office may have a slightly different approach to conveying the
closing instructions. Regardless of the method, all closing instructions should
contain complete information. The following items may be attached to the closing
instructions:

A print of TXMOD or IMFOLT with the deficiency transaction codes underlined
that need to be moved to MFT 31

A list of all payments that need to be refunded or applied to another
account

If you are correcting an account problem, clearly indicate any adjustment
information or entity corrections that are required. Clearly indicate what
actions you are requesting. If the closing instructions are unclear, the case
may be sent back for clarification.

4.11.34.4.4
(12-15-2004)Case File Assembly Guide

Since post-assessment innocent spouse cases contain the same basic information,
the related case files should contain the same information as pre-assessment
case files and be uniform in their assembly.

A case file assembly guide was developed for the consistent ordering
of information. See http://www.hq.irs.gov/iswp/Documents/Job%20Aids/IS-CaseAssembly.doc

4.11.34.5
(12-15-2004)Fraud Penalty

During an examination, a separate determination should be made for each
spouse filing a joint return as to whether the fraud penalty under IRC Section
6663 should be asserted against one or both spouses.

This determination should be fully developed and supported by the facts
of the case.

4.11.34.6
(12-15-2004)Offers In Compromise

Doubt as to Collectibility - In instances where
the main issue is the lack of funds to pay the tax, the requesting spouse
should be advised to file an OIC doubt as to collectibility rather than a
request for relief from joint and several liability. Collectibility is separate
from the issue of liability under the relief provisions.

Doubt as to Liability - If the sole issue is relief
from joint and several liability, the taxpayer should withdraw their OIC and
file Form 8857. In most instances, this will expedite the processing of their
claim.

Note:

Once a taxpayer's offer in compromise is accepted, the taxpayer
is precluded by the terms of the offer to raise any issue related to the liability
of the tax period compromised. Therefore, the taxpayer is ineligible to file
an innocent spouse claim for that tax period.

Additional information concerning Offer in Compromises as they relate
to innocent spouse relief is provided in IRM 25.15.1 subsection 2.7.

4.11.34.7
(12-15-2004)MFT 31

MFT 31 is an IMF master file (MFT) account code used for split assessments
against an individual taxpayer (solely liable) on a joint module.

In most cases, MFT 31 replaces the need for a NMF account. MFT 31 is
available on IDRS much like MFT 30 accounts.

In cases where innocent spouse relief is granted in full or in part,
MFT 31 will be necessary to hold the balance for the culpable spouse.

For more information concerning MFT 31 and the old NMF accounts see
IRM 4.11.59.

4.11.34.8
(12-15-2004)Innocent Spouse Tracking System

The Innocent Spouse Tracking System (ISTS) is designed to track the
inventory and progress of all innocent spouse claims. The claims are tracked
by using universal IDRS assignment numbers. A specific assignment number identifies
each stage of the claim process.

The ISTS is accessed via CC ISTS with certain definers.

A reference guide was developed for use with this command code. The
"ISTS Reference Guide"
is listed as a Job Aid on the I/S web
site: (See http://www.hq.irs.gov/iswp/Documents/Job%20Aids/job_aids.htm).

Any updates/corrections should be handled through your
Innocent Spouse Coordinator.

See IRM 25.15.14 to resolve problems and questions relating to the tracking
system.